EURUSD forecast for 16.07.2020

July 16, 2020

EUR/USD forecast: Euro asks the ECB not to go too farDmitri Demidenko

Fundamental Euro forecast for today

If European QE ends too early, the euro-area bond market and the

EUR/USD bulls will be challenged

When the market is stabilizing, and the interest rates of the G10 central banks are close to zero, the world follows fundamental laws. The idea of trading changes in the global risk appetite is giving way to such a Forex driver as the divergence in economic growth. Strong domestic data strengthen the local currency and vice versa. Just like in an economics textbook. So, it is not surprising that the US dollar featured a stronger reaction to the impressive growth of US industrial production than the [S&P 500][1].

According to the Deutsche Bank, the drop in the US macroeconomic indicators amid the growth in the number of COVID-19 confirmed cases will be the major reason for the greenback’s weakness in the short-term outlook. The USD trade-weighted index is about to test the bull trendline started in 2011. Goldman Sachs says the improvement of domestic data in the euro-area and China in addition to the long-term dollar weakness will encourage the dollar bears to go ahead.

Dynamics of the USD Trade Weighted Index

![LiteForex: EURUSD forecast for 16.07.2020][2]

Source: Bloomberg

The [EUR/USD][3] rise won’t be so easy. Everything can change at any moment. According to Bloomberg, if the euro-area workers roll off retention schemes into unemployment, the unemployment rate could jump by 6% on average. higher unemployment could prompt consumption to drop by as much as 4% in the four biggest euro-area economies, dragging GDP down by 1.3% through this channel. Although Germany and France are going to support the €750-billion recovery plan, the project hasn’t been yet adopted. The weakness of the euro-area domestic demand threatens European exports, which is very dangerous for the export-led euro-area economy.

These factors make the ECB extremely careful with the issue of the end of the emergency asset purchase program. According to Bloomberg’s leading indicators, the economic recovery of Germany, France, Spain, Italy is going on faster than in the USA. However, the euro area may any time follow the way of Japan, where the recovery trend has slowed down.

Dynamics of the recover of the world’s leading economies

![LiteForex: EURUSD forecast for 16.07.2020][4]

Source: Bloomberg

Christine Lagarde is likely to sound moderately dovish, stressing the current risks and leaving the door open for further QE expansion. It should calm down the markets and narrow the euro-area bond-yield spreads, which should support the euro.

The [EUR/USD][3] bulls are supported by the hopes for the approval of the French-German plan at the EU summit, the growth of the US stock indexes amid the news about the successful tests of the COVID-19 vaccine, and the expansion of China’s GDP by 3.2% in the second quarter. The indicator exceeded the forecasts, it must be in the positive area at the end of 2020. However, China’s retail sales data are disappointing. It raises concerns about the recovery of the advanced economies, where the proportion of the consumption in the GDP is much greater than in China.

Despite the [EUR/USD][3] correction down from three-month highs, the euro middle-term and long-term outlook remain bullish. The pair can well reach the target at 1.16 this year, so, it makes sense to buy on the corrections down.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker [here][5]. The system allows you to trade by yourself or copy successful traders from all across the globe.
Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][6] your trading account.
Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro asks the ECB not to go too far][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Rate this article:

( {{count}} {{title}} )